California reached a deal on legislation to raise the state minimum wage across all businesses to $15 per hour by 2023, a move that could cost the state hundreds of thousands of jobs, according to a new report.
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A study conducted by the Employment Policies Institute (EPI), which analyzed employment trends from 1990 through 2017, found that each 10% increase in the minimum wage in the Golden State has resulted in a corresponding 2% decline in employment for affected employees. The impact was larger, 5%, for lower-paid workers. By those estimates, the EPI projects that the pending $15 minimum wage hike would cost California 400,000 private sector jobs, with heavy losses in both the foodservice and retail sectors.
While the EPI acknowledges that real firms could “respond to higher minimum wages in ways that cause divergent effects,” it says “what is not in dispute” is that “rising minimum wage has depressed employment opportunities in the most heavily-impacted industries.”
As of January 1, California’s minimum wage will increase to $11 per hour from the current level of $10.50 per hour for businesses with 26 employees or more. From that point, it will be a $1 per year increase trajectory through 2022. Businesses with 25 employees or less will reach the $15 per hour threshold by 2023.
While the prospects of increased automation and higher costs are often cited as employment killers, other studies that have been conducted point to the exact opposite result.
The Institute for Research on Labor & Employment (IRLE) at U.C. Berkeley, found that a higher minimum wage would actually add a small amount of jobs to the state economy by 2023. Without the increase, IRLE forecasts employment would grow 1.4% annually. The minimum wage increase would raise employment by 0.1%, equal to about 13,000 jobs, by 2023, according to the group’s study.
The IRLE suggested that while raising the minimum wage can have negative consequences, it also carries benefits.
“A higher minimum wage induces some automation, as well as increased worker productivity and slightly higher prices; these are the negative effects. A minimum wage increase simultaneously reduces employee turnover, which reduces employers’ costs, and it increases worker purchasing power, which stimulates consumer demand. These are the positive effects. As it turns out, these negative and positive effects on employment largely offset each other,” the group said.